The owners of the vessel Res Cogitans consumed bunkers supplied under terms that reserved title until payment but permitted use for propulsion. They contended that, because property had not passed, they were not liable to pay the price to the insolvent supplier under the Sale of Goods Act 1979. The Supreme Court held that the contract was not a contract of sale at all but a sui generis agreement, so the owners had no defence to the claim for the agreed price.
Background and the supply chain
Bunkers were delivered to the vessel Res Cogitans at Tuapse on 4 November 2014. The owners and managers (the Owners) had ordered them from OW Bunker Malta Ltd (OWBM) for a stated total of USD 443,800, payable within 60 days of delivery. OWBM obtained the bunkers from its parent, OW Bunker & Trading A/S (OWBAS), which obtained them from Rosneft Marine (UK) Ltd (RMUK). RMUK in turn contracted with RN-Bunker Ltd, which made the physical delivery. On 6 November 2014 OWBAS announced that it was applying for restructuring. The second respondent, ING Bank NV, financed the OW Bunker Group and claimed as assignee of OWBM.
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The Owners were concerned that they might have to pay twice: once to the now-insolvent OWBM group and again to an upstream supplier asserting rights under a reservation of title. On the facts assumed for the preliminary issues, the bunkers were wholly consumed in the vessel’s propulsion and no payment was made to RMUK, although RMUK paid its own supplier and sent the Owners a demand for USD 416,000. No formal steps by RMUK to pursue that demand were indicated to the Court.
The contract terms
OWBM’s contract was expressed in the language of sale but was subject to the OW Bunker Group’s general terms. Those terms provided that title remained with OWBM until full payment, that until then the Owners held the bunkers solely as bailee, and that the Owners were not entitled to use the bunkers other than for the propulsion of the vessel. Risk passed on delivery. RMUK’s terms likewise treated the buyer as bailee until payment. On the assumed facts RMUK knew that the bunkers were being acquired for resale and immediate use and might be consumed within the credit periods.
Decisions below
The Owners sought a declaration in arbitration that they had no liability to OWBM or ING. The arbitrators held, on the assumed facts, that the contract was not a contract of sale within the Sale of Goods Act 1979, that section 49 therefore did not constrain recovery, and that OWBM was entitled to the agreed sum as a debt. Males J and the Court of Appeal dismissed the Owners’ appeal, holding that the Act did not apply. The Court of Appeal added that the contract might be treated as a sale to the extent of any bunkers still unconsumed at the date of payment.
The Supreme Court’s reasoning
Lord Mance, with whom Lord Neuberger, Lord Clarke, Lord Hughes and Lord Toulson agreed, held that the agreement could not be characterised by its sale-like language alone. Its essential features, reflected in the retention-of-title and limited-use clauses and in the commercial setting of bunker supply on credit, were a liberty to consume bunkers in propulsion before payment without property ever passing in what was consumed, and an obligation to transfer property only in any bunkers that remained, in return for one price covering all the bunkers supplied. The contract was a single indivisible bargain. It was therefore sui generis, not a contract of sale under section 2(1) of the 1979 Act.
The Court rejected analyses that treated the whole contract as a conditional sale, or as a sale only so far as bunkers survived until payment. It also rejected the Owners’ argument that business efficacy required an implied term obliging OWBM to perform obligations owed to its own supplier, such as timeous payment. The only relevant implied undertaking was that OWBM had acquired the right, through the chain of contracts, to authorise use for propulsion before payment. On the assumed facts that entitlement was not challenged, the contractual liberty continued, and the Owners simply consumed the bunkers. They therefore had no defence to the claim for the agreed price.
Although the point did not arise, Lord Mance indicated that, had the contract been one of sale, section 49 would not have been a complete code barring recovery of the price, and he would have overruled the Court of Appeal’s decision in FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd on that issue. The precise limits of the circumstances outside section 49 in which the price may be recovered were left for a future case.
Verdict: The Court unanimously dismissed the owners’ appeal. On the assumed facts they had no defence to the claim for the agreed price. The Court left open the precise circumstances in which a seller may claim the price outside section 49.
Source: PST Energy 7 Shipping LLC and another v O W Bunker Malta Limited and another [2016] UKSC 23
